1. Know where your money is going.
Creating a budget that works means knowing exactly how you’re spending your money. “Most people have an idea where their money comes from, but very few have an accurate idea of where it all goes,” says John Gajkowski, Certified Financial Planner and co-founder of Money Managers Financial Group.
Tracking your money—with digital budgeting tools, an Excel spreadsheet or old-school pen and paper—might reveal a gap between expectations and actual spending habits. Or help you see why you’re consistently spending everything you earn. Even small adjustments, like trimming your cable package or utility bills or committing to packing one lunch a week, can help free up cash.
Then you can work toward goals that are important to you, from saving for a rainy day to traveling the world and buying a home. As you start to more closely align your spending and values, you’ll be less likely to succumb to social obligations or peer pressure to spend money on things that won’t bring you lasting satisfaction.
2. Pay yourself first.
You know it’s important to prepare for the future, but how do you do it when money’s tight? The trick is “paying yourself first,” or earmarking cash for your emergency fund and longer-term goals before buying groceries or anything else.
An emergency fund of three to six months’ worth of expenses keeps you from reaching for credit cards to cover pop-up expenses or stints of unemployment. Investing—in a retirement account for long-term goals and regular investment account for pre-retirement goals—is the key to building wealth. In other words, you can’t afford not to prioritize these goals.
Can’t spare much? Start anyway. The idea is to practice the habit, so when your income grows, you’ll naturally save and invest more. For example, every time you get a raise, increase your 401(k) or other investment contributions by the same amount. “So you’re paying yourself more without feeling any difference,”says Lisa Brown, Certified Financial Planner and partner at Brightworth.
3. Automate everything you can.
Automation is your best friend. It prevents accidental missed bill payments, which can tank your credit score, and takes a lot of pressure off saving and investing.
A good rule of thumb: Set up auto-transfers on or right after payday from your checking account to a high-yield online savings account and investment accounts.
4. Don’t carry a balance.
Credit cards can come with some great perks, from rewards to purchase protection, but racking up a balance can do serious damage. For one, a high debt-utilization ratio—when you’re using up a big portion of your available credit—can negatively affect your credit score. And interest rates in the double digits can add a lot to your monthly payment. Constantly playing catch-up also takes away money and motivation from your other goals.
This underscores the importance of having a safety net—even a small one at first—so you’re not forced to swipe plastic when emergencies strike. “If you can just get to $1,000, you’re going to be ahead of a lot of people; most emergencies cost less than that,” says Chad Nehring, Certified Financial Planner and president of Conceptual Financial Advisors.
For those still hacking away at debt, make sure it’s a top priority. Selecting the right repayment strategy can help you cross the finish line sooner.
This post originally appeared on Grow.
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